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Globalising capitalism is opposed by two major groups - the cultural nationalists in the third world, who fear the westernisation it may bring and the New Dirigistes, proponents of the “third way’” in the West who bear the ancient hatred of capitalism on their sleeves. Why this continuing hatred of, and guilt about, a system which promises unprecedented global prosperity?

Capitalism was aptly defined by the great Austrian economist Joseph Schumpeter as a system of ‘creative destruction’. Its instruments are entrepreneurs. They and the institutions through which they operate - entrepots, commercial houses, banks, firms - have been ubiquitous since the development of Eurasia’s sedentary civilisations, and from Assyrian tablets go back at least to the Karum in ancient Mesopotamia of the 20th and 19th centuries BC. Though these ancient merchant capitalists became rich, they were at best tolerated as a necessary evil and held in low esteem, with their accumulated wealth continually subject to predation by the state. Their calling necessarily involved assuming risks and valuing novelty, and it was the very creative destruction which they caused which was held against them.

Whilst these maverick capitalists existed in all the ancient agrarian Eurasian civilisations, it was only in one that they came to be given their head, with their novelty seeking and risk taking behaviour eventually becoming socially and politically acceptable. This marked the emergence of capitalism as an economic institution which led to the great divergence between the West and the Rest.

My contention, as set out in Unintended Consequences is that the Great Divergence resulted from a legal revolution in the 11th century instigated by Pope Gregory VII who, in 1075, put the Church above the State and, through the resulting Church-State, created the whole legal and administrative infrastructure required by a full-fledged market economy. Many of the specific institutions of capitalism predate this Papal revolution but they were insecure and most often based on the trust engendered within the extended families of traders and merchants. The 11th century Papal revolution, by creating the church-state, provided a legal bulwark and administrative system whose reach, unlike most of the political states, covered the whole of Western Christendom. It allowed the novelty seeking and risk-taking capitalists to pursue securely their enterprise over a larger space and with myriads of strangers, thus initiating the economic system which has changed the world.

This Papal revolution which changed the West’s ‘material’ beliefs was preceded and precipitated by an earlier 6th century revolution of Pope Gregory the Great which changed the West’s ‘cosmological’ beliefs ( on ‘how one should live’) from the communalism common throughout Eurasia to individualism, particularly in the domestic domain concerning sex and marriage. By promoting marriages based on the universal but ephemeral emotion of love, it went against the common Eurasian pattern of arranged marriages, which eschewed a fickle emotion’s threat to the families needed for settled agriculture. To counter the threat unleashed by individualism in the domestic domain, the Christian Church created a fierce guilt culture which provided its moral moorings, until the Darwinian and Freudian revolutions destroyed its bases of God and Guilt.

These twin Papal revolutions have cast a long shadow. Though temporally conjoined, the change in ‘cosmological’ beliefs promoting individualism is not necessary for the change in ‘material’ beliefs promoting capitalism. It is the latter that globalisation is spreading through the world, by exporting the institutional infrastructure of a market economy created by Pope Gregory VII.

The capitalism thereby promoted has been under attack since the romantic revolt against the enlightenment and its ‘disenchantment of the world’. The arguments have been mainly moral and aesthetic. For both the cultural nationalists and the New Dirigistes, globalisation is seen as a Faustian pact where prosperity is bought at the cost of losing one’s soul. However, unlike their 19th century predecessors, the New Dirigistes can no longer appeal to a socialist utopia to provide a middle way between the creative destruction of capitalism and the settled unchanging way of life in attune with Nature of their agrarian past. They now seek to humanise capitalism through regulation and social and moral paternalism. The demoralisation of societies perceived as accompanying the rise of globalising capitalism has been wrongly attributed to the instrument of their prosperity, capitalism, rather than the growing moral vacuum in the West, which they themselves have promoted, and which has destroyed the West’s traditional and conventional moral moorings.

The moral cement of non-monotheistic Eurasian societies was provided by conventions and traditions transmitted to the young through the moral emotions of shame and guilt. David Hume, too, believed that neither God nor Reason but conventions and traditions provided the basis of morality. The West’s current ‘cosmological’ beliefs, as the moral philosopher Alasdair Macintyre has powerfully argued, are incoherent - a mish mash of Enlightenment ideals of individual self-realisation, standards of competitive success in an acquisitive society, and a residual of Christian belief in transcendental salvation.

It is the global transfer of this demoralisation of the West, particularly in the domestic domain, that the cultural nationalists most fear. Eurasia’s wounded civilisations had three responses to the Western imperial impact. The first, like the Japanese, was to accept the material beliefs of the West, whilst keeping their cosmological beliefs. The second, embodied by Gandhi and the current Islamists, was to eschew modernisation as it would lead to westernisation. The third, and most common, was to find a middle way between tradition and modernity though some form of socialism - the extreme Enlightenment version followed by Stalinist Russia and Maoist China, or the gentler Fabian version, combining the rationalist manipulation of the Enlightenment with the Romantic critique of the young Marx and the English socialists William Morris and R. H. Tawney, as epitomised by Nehruvian India.

The failure of this path has at last led the two largest Eurasian civilisations, India and China, to follow the Japanese path by recognising that globalising capitalism offers them the means for prosperity without losing their souls. So, it is in the lands where Islamists hold sway and among the New Dirigistes of the West, that hatred of globalising capitalism still remains for essentially atavistic reasons.

The author is James S. Coleman Professor of International Development Studies at the University of California, Los Angeles. This article is based on his new book Reviving the Invisible Hand: the case for classical liberalism in the twenty first century, Princeton University Press (2006).